Question

Assume that an equity investment that lacks significant influence is sold. Which of the following would be included in the two entries to record the sale? (Select all that apply.)A. An update of the Fair value adjustment account B. Removal of the related investment account balances C. The total amount of gain or loss that has occurred since the securities were purchased D. The amount of the unrealized holding gain or loss that has occurred since the end of the prior accounting period

Answer 1

Answer:

A. An update of the Fair value adjustment account

D. The amount of the unrealized holding gain or loss that has occurred since the end of the prior accounting period

Explanation:

The value of an equity investment that lacks significant influence is adjusted at the end of each accounting period against an unrealized gain/loss account.

When the equity investment is sold, the unrealized gain/loss account will become realized depending on the sales value. Before any final gain or loss is realized, an adjustment must be made to the investment's Fair value adjustment account.

E.g if the investment X's balance account was $510,000 and its fair market value was $550,000, we would first need to adjust the fair value:

Dr Fair value adjustment of investment X 40,000

    Cr Unrealized holding gain 40,000